The
Following Information Is From U.S. Department of Housing
and Urban Development
CLOSING
1.
WHAT HAPPENS AFTER I'VE
APPLIED FOR MY LOAN?
It usually takes a lender
between 1-6 weeks to complete the evaluation of your
application. Its not unusual for the lender to ask for more
information once the application has been submitted. The
sooner you can provide the information, the faster your
application will be processed. Once all the information has
been verified the lender will call you to let you know the
outcome of your application. If the loan is approved, a
closing date is set up and the lender will review the
closing with you. And after closing, you'll be able to move
into your new home.
2. WHAT SHOULD I LOOK OUT FOR DURING
THE FINAL WALK-THROUGH?
This will likely be the
first opportunity to examine the house without furniture,
giving you a clear view of everything. Check the walls and
ceilings carefully, as well as any work the seller agreed to
do in response to the inspection. Any problems discovered
previously that you find uncorrected should be brought up
prior to closing. It is the seller's responsibility to fix
them.
3. WHAT MAKE UP CLOSING COST?
There may be closing cost
customary or unique to a certain locality, but closing cost
are usually made up of the following:
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Attorney's or escrow
fees (Yours and your lender's if applicable) |
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Property taxes (to
cover tax period to date) |
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Interest (paid from
date of closing to 30 days before first monthly payment)
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Loan Origination fee
(covers lenders administrative cost) |
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Recording fees |
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Survey fee |
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First premium of
mortgage Insurance (if applicable) |
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Title Insurance (yours
and lender's) |
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Loan discount points
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First payment to
escrow account for future real estate taxes and
insurance |
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Paid receipt for
homeowner's insurance policy (and fire and flood
insurance if applicable) |
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Any documentation
preparation fees |
4. WHAT CAN I EXPECT TO HAPPEN ON
CLOSING DAY?
You'll present your paid
homeowner's insurance policy or a binder and receipt showing
that the premium has been paid. The closing agent will then
list the money you owe the seller (remainder of down
payment, prepaid taxes, etc.) and then the money the seller
owes you (unpaid taxes and prepaid rent, if applicable). The
seller will provide proofs of any inspection, warranties,
etc.
Once you're sure you
understand all the documentation, you'll sign the mortgage,
agreeing that if you don't make payments the lender is
entitled to sell your property and apply the sale price
against the amount you owe plus expenses. You'll also sign a
mortgage note, promising to repay the loan. The seller will
give you the title to the house in the form of a signed
deed.
You'll pay the lender's
agent all closing costs and, in turn, he or she will provide
you with a settlement statement of all the items for which
you have paid. The deed and mortgage will then be recorded
in the state Registry of Deeds, and you will be a homeowner.
5. WHAT DO I GET AT CLOSING?
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Settlement Statement,
HUD-1 Form (itemizes services provided and the fees
charged; it is filled out by the closing agent and must
be given to you at or before closing) |
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Truth-in-Lending
Statement |
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Mortgage Note |
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Mortgage or Deed of
Trust |
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Binding Sales Contract
(prepared by the seller; your lawyer should review it)
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Keys to your new home
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HOW CAN
HUD AND THE FHA HELP ME BECOME A HOMEOWNER
6.
WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT?
Also known as HUD, the U.S.
Department of Housing and Urban Development was established
in 1965 to develop national policies and programs to address
housing needs in the U.S. One of HUD's primary missions is
to create a suitable living environment for all Americans by
developing and improving the country's communities and
enforcing fair housing laws
7. HOW DOES HUD HELP HOMEBUYERS AND
HOMEOWNERS?
HUD helps people by
administering a variety of programs that develop and
support affordable housing. Specifically, HUD plays a
large role in home ownership by making loans available for
lower- and moderate-income families through its FHA
mortgage insurance program and its HUD Homes program. HUD
owns homes in many communities throughout the U.S. and
offers them for sale at attractive prices and economical
terms. HUD also seeks to protect consumers through
education, Fair Housing Laws, and housing rehabilitation
initiatives.
8. WHAT IS THE FHA?
Now an agency within HUD,
the Federal Housing Administration was established in 1934
to advance opportunities for Americans to own homes. By
providing private lenders with mortgage insurance, the FHA
gives them the security they need to lend to first-time
buyers who might not be able to qualify for conventional
loans. The FHA has helped more than 26 million Americans
buy a home.
9. HOW CAN THE FHA ASSIST ME IN
BUYING A HOME?
The FHA works to make
home ownership a possibility for more Americans. With the
FHA, you don't need perfect credit or a high-paying job to
qualify for a loan. The FHA also makes loans more
accessible by requiring smaller down payments than
conventional loans. In fact, an FHA down payment could be
as little as a few months rent. And your monthly payments
may not be much more than rent.
10. HOW IS THE FHA FUNDED?
Lender claims paid by the
FHA mortgage insurance program are drawn from the Mutual
Mortgage Insurance fund. This fund is made up of premiums
paid by FHA-insured loan borrowers. No tax dollars are
used to fund the program.
11. WHO CAN QUALIFY FOR FHA LOANS
anyone who meets the credit
requirements, can afford the mortgage payments and cash
investment, and who plans to use the mortgaged property as
a primary residence may apply for an FHA-insured loan.
12. WHAT IS THE FHA LOAN LIMIT?
FHA loan limits vary
throughout the country, from $115,200 in low-cost areas to
$208,800 in high-cost areas. The loan maximums for
multi-unit homes are higher than those for single units
and also vary by area.
Because these maximums are
linked to the conforming loan limit and average area home
prices, FHA loan limits are periodically subject to
change. Ask your lender for details and confirmation of
current limits.
13. WHAT ARE THE STEPS INVOLVED IN THE
FHA LOAN PROCESS?
With the exception of a few
additional forms, the FHA loan application process is
similar to that of a conventional loan (see Question 47).
With new automation measures, FHA loans may be originated
more quickly than before. And, if you don't prefer a
face-to-face meeting, you can apply for an FHA loan via
mail, telephone, the Internet, or video conference.
14. HOW MUCH INCOME DO I NEED TO HAVE
TO QUALIFY FOR AN FHA LOAN?
There is no minimum income
requirement. But you must prove steady income for at least
three years, and demonstrate that you've consistently paid
your bills on time.
15. WHAT QUALIFIES AS AN INCOME SOURCE
FOR THE FHA?
Seasonal pay, child support,
retirement pension payments, unemployment compensation, VA
benefits, military pay, Social Security income, alimony,
and rent paid by family all qualify as income sources.
Part-time pay, overtime, and bonus pay also count as long
as they are steady. Special savings plans-such as those
set up by a church or community association - qualify,
too. Income type is not as important as income steadiness
with the FHA.
16. CAN I CARRY DEBT AND STILL QUALIFY
FOR FHA LOANS?
Yes. Short-term debt doesn't
count as long as it can be paid off within 10 months. And
some regular expenses, like child care costs, are not
considered debt. Talk to your lender or real estate agent
about meeting the FHA debt-to-income ratio.
17. WHAT IS THE DEBT-TO-INCOME RATIO
FOR FHA LOANS?
The FHA allows you to use
29% of your income towards housing costs and 41% towards
housing expenses and other long-term debt. With a
conventional loan, this qualifying ratio allows only 28%
toward housing and 36% towards housing and other debt
18. CAN I EXCEED THIS RATIO?
You may qualify to exceed
if you have:
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a large down payment
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a demonstrated ability
to pay more toward your housing expenses |
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substantial cash
reserves |
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net worth enough to
repay the mortgage regardless of income |
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evidence of acceptable
credit history or limited credit use |
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less-than-maximum
mortgage terms |
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funds provided by an
organization |
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a decrease in monthly
housing expenses |
19. HOW LARGE A DOWN PAYMENT DO I NEED
WITH AN FHA LOAN?
You must have a down payment
of at least 3% of the purchase price of the home. Most
affordable loan programs offered by private lenders
require between a 3%-5% down payment, with a minimum of 3%
coming directly from the borrower's own funds.
20. WHAT CAN I USE TO PAY THE DOWN
PAYMENT AND CLOSING COSTS OF AN FHA LOAN?
Besides your own funds, you
may use cash gifts or money from a private savings club.
If you can do certain repairs and improvements yourself,
your labor may be used as part of a down 8 payment (called
-sweat equity"). If you are doing a lease purchase, paying
extra rent to the seller may also be considered the same
as accumulating cash.
21. HOW DOES MY CREDIT HISTORY IMPACT
MY ABILITY TO QUALIFY?
The FHA is generally more
flexible than conventional lenders in its qualifying
guidelines. In fact, the FHA allows you to re-establish
credit if:
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two years have passed
since a bankruptcy has been discharged |
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all judgments have
been paid |
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any outstanding tax
liens have been satisfied or appropriate arrangements
have been made to establish a repayment plan with the
IRS or state Department of Revenue |
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three years have
passed since a foreclosure or a deed-in-lieu has been
resolved |
22. CAN I QUALIFY FOR AN FHA LOAN
WITHOUT A CREDIT HISTORY?
Yes. If you prefer to pay
debts in cash or are too young to have established credit,
there are other ways to prove your eligibility. Talk to
your lender for details.
23. WHAT TYPES OF CLOSING COSTS ARE
ASSOCIATED WITH FHA-INSURED LOANS?
Except for the addition of
an FHA mortgage insurance premium, FHA closing costs are
similar to those of a conventional loan outlined in
Question 63. The FHA requires a single, up-front mortgage
insurance premium equal to 2.25% of the mortgage to be
paid at closing (or 1.75% if you complete the HELP
program- see Question 91). This initial premium may be
partially refunded if the loan is paid in full during the
first seven years of the loan term. After closing, you
will then be responsible for an annual premium - paid
monthly - if your mortgage is over 15 years or if you have
a 15-year loan with an LTV greater than 90%.
24. CAN I ROLL CLOSING COSTS INTO my
FHA LOAN?
No. Though you can't roll
closing costs into your FHA loan, you may be able to use
the amount you pay for them to help satisfy the down
payment requirement. Ask your lender for details.
25. ARE FHA LOANS ASSUMABLE?
Yes. You can assume an
existing FHA-insured loan, or, if you are the one deciding
to sell, allow a buyer to assume yours. Assuming a loan
can be very beneficial, since the process is stream- lined
and less expensive compared to that for a new loan. Also,
assuming a loan can often result in a lower interest rate.
The application process consists basically of a credit
check and no property appraisal is required. And you must
demonstrate that you have enough income to support the
mortgage loan. In this way, qualifying to assume a loan is
similar to the qualification requirements for a new one.
26. WHAT SHOULD I DO IF I CAN'T MAKE A
PAYMENT ON LOAN?
Call or, write to your
lender as soon as possible, clearly explain the situation
and be prepared to provide him or her with financial
information.
27. ARE THERE ANY OPTIONS IF I FALL
BEHIND ON MY LOAN PAYMENTS?
Yes. Talk to your lender or
a HUD-approved counseling agency for details. Listed below
are a few options that may help you get back on track.
For FHA loans:
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Keep living in your
home to qualify for assistance. |
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Contact a HUD-approved
housing counseling agency (1-800-569-4287 or TDD:
1-800-877-8339) and cooperate with the counselor/lender
trying to help you. |
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HUD has a number of
special loss mitigation programs available to help you:
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Special Forbearance:
Your lender will arrange for a revised repayment plan
which may Include temporary reduction or suspension of
payments; you can qualify by having an Involuntary
reduction in your Income or Increase In living expenses.
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Mortgage Modification:
Allows refinance debt and/or extend the term of the your
mortgage loan which may reduce your monthly payments;
you can qualify if you have recovered from financial
problems, but net Income Is less than before. |
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Partial Claim: Your
lender maybe able to help you obtain an interest-free
loan from HUD to bring your mortgage current. |
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Pre-foreclosure Sale:
Allows you to sell your property and pay off your
mortgage loan ,to avoid foreclosure. |
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Deed-in lieu of
Foreclosure: Lets you voluntarily "give back" your
property to the lender; it won't save your house but
will help you avoid the costs, time, and effort of the
foreclosure process. |
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If you are having
difficulty with an-uncooperative lender or feel your
loan servicer is not providing you with the most
effective loss mitigation options, call the FHA Loss
Mitigation Center at 1-888-297-8685 for additional help.
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For conventional loans:
Talk to your lender about
specific loss mitigation options. Work directly with him
or her to request a "workout packet." A secondary lender,
like Fannie Mae or Freddie Mac, may have purchased your
loan. Your lender can follow the appropriate guidelines
set by Fannie or Freddie to determine the best option for
your situation.
Fannie Mae does not deal
directly with the borrower. They work with the lender to
deter-mine the loss mitigation program that best fits your
needs.
Freddie Mac, like Fannie
Mae, will usually only work with the loan servicer.
However, if you encounter problems with your lender during
the loss mitigation process, you can call customer service
for help at 1-800-FREDDIE (1-800-373-3343).
In any loss mitigation
situation, it is important to remember a few helpful hints:
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Explore every
reasonable alternative to avoid losing your home, but
beware of scams. For example, watch out for: |
- Equity skimming: a buyer
offers to repay the mortgage or sell the property if you
sign over the deed and move out.
- Phony counseling
agencies: offer counseling for a fee when it is often
given at no charge.
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Don't sign anything
you don't understand. |
MORTGAGE INSURANCE
28.
WHAT IS MORTGAGE INSURANCE?
Mortgage insurance is a
policy that protects lenders against some or most of the
losses that result from defaults on home mortgages. it's
required primarily for borrowers making a down payment of
less than 20%.
29. HOW DOES MORTGAGE INSURANCE WORK?
IS IT LIKE HOME OR AUTO INSURANCE?
Like home or auto insurance,
mortgage insurance requires payment of a premium, is for
protection against loss, and is used in the event of an
emergency. If a borrower can't repay an insured mortgage
loan as agreed, the lender may foreclose on the property
and file a claim with the mortgage insurer for some or
most of the total losses.
30. DO I NEED MORTGAGE INSURANCE? HOW
DO I GET IT?
You need mortgage insurance
only if you plan to make a down payment of less than 20% of
the purchase price of the home. The FHA offers several loan
programs that may meet your needs. Ask your lender for
details.
31. HOW CAN I RECEIVE A DISCOUNT ON
THE FHA INITIAL MORTGAGE INSURANCE PREMIUM?
Ask your real estate agent
or lender for information on the HELP program from the FHA.
HELP - Home buyer Education Learning Program - is structured
to help people like you begin the home buying process. It
covers such topics as budgeting, finding a home, getting a
loan, and home maintenance. In most cases, completion of
this program may entitle you to a reduction in the initial
FHA mortgage insurance premium from 2.25% to 1.75% of the
purchase price of your new home.
32. WHAT IS PMI?
PMI stands for Private
Mortgage Insurance or Insurer. These are privately-owned
companies that provide mortgage insurance. They offer both
standard and special affordable programs for borrowers.
These companies provide guidelines to lenders that detail
the types of loans they will insure. Lenders use these
guidelines to determine borrower eligibility. PMI's usually
have stricter qualifying ratios and larger down payment
requirements than the FHA, but their premiums are often
lower and they insure loans that exceed the FHA limit.
FHA PRODUCTS
33.
WHAT IS A 203(b) LOAN?
This is the most commonly
used FHA program. it offers a low down payment, flexible
qualifying guidelines, limited lender's fees, and a maximum
loan amount.
34. WHAT IS A 203(k) LOAN?
This is a loan that enables
the home buyer to finance both the purchase and
rehabilitation of a home through a single mortgage. A
portion of the loan is used to pay off the seller's existing
mortgage and the remainder is placed in an escrow account
and released as rehabilitation is completed. Basic
guidelines for 203(k) loans are as follows:
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The home must be at
least one year old. |
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The cost of
rehabilitation must be at least $5,000, but the total
property value - including the cost of repairs - must
fall within the FHA maximum mortgage limit. |
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The 203(k) loan must
follow many of the 203(b) eligibility requirements.
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Talk to your lender
about specific improvement, energy efficiency, and
structural guidelines. |
35. WHAT IS AN ENERGY EFFICIENT
MORTGAGE (EEM)?
The Energy Efficient
Mortgage allows a home buyer to save future money on
utility bills. This is done by financing the cost of
adding energy-efficiency features to a new or existing
home as part of an FHA-insured home purchase. The EEM can
be used with both 203(b) and 203(k) loans. Basic
guidelines for EEMs are as follows:
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The cost of
improvements must be determined by a Home Energy Rating
System or by an energy consultant. This cost must be
less than the anticipated savings from the improvements.
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One- and two-unit new
or existing homes are eligible; condos are not. |
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The improvements
financed may be 5% of property value or $4,000,
whichever is greater. The total must fall within the FHA
loan limit. |
36. GET IT ALL TOGETHER.
Get all your paperwork and
information together. Be sure that you keep it in a safe
place where you will be able to refer to it as needed.
37.
WHAT IS A TITLE I LOAN?
Given by a Lender and
insured by the FHA, a Title I loan is used to make
non-luxury renovations and repairs to a home. It offers a
manageable interest rate and repayment schedule. Loans are
limited to between $5,000 and 20,000. If the loan amount
is under 7,500, no lien is required against your home. Ask
your lender for details.
38. WHAT OTHER LOAN PRODUCTS OR
PROGRAMS DOES THE FHA OFFER?
The FHA also insures loans
for the purchase or rehabilitation of manufactured
housing, condominiums, and cooperatives. It also has
special programs for urban areas, disaster victims, and
members of the armed forces. Insurance for ARMS is also
available from the FHA.
39. HOW CAN I OBTAIN AN FHA-INSURED
LOAN?
Contact an FHA-approved
lender such as a participating mortgage company, bank,
savings and loan association, or thrift. For more
information on the FHA and how you can obtain an FHA loan,
visit the HUD web site at
http://www.hud.gov or call a HUD-approved counseling
agency at 1-800-569-4287 or TDD: 1-800-877-8339.
40. HOW CAN I CONTACT HUD?
Visit the web site at
http://www.hud.gov or look in the phone book "blue
pages" for a listing of the HUD office near you.
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